Determinants of Stock Price Crash Risk: Evidence from BRICS Countries

Abstract

This study examines the impact of firm-level financial and governance factors on stock price crashes (SPCR) in the emerging markets of the BRICS (Brazil, Russia, India, China, and South Africa) countries. To overcome the problems of endogeneity, this study uses the GMM model, which is based on a panel dataset of 5,350 firm-year observations from 446 non-financial firms between 2012 and 2023. To measure the risk of a crash, this study uses negative conditional skewness (NCSKEW) and down-to-up volatility (DUVOL). The study finds that companies with high past returns and large weekly price volatility are more likely to experience price crashes later because of withholding bad news. Additionally, when a company handles more trades and is larger in size, it often sees a rise in crash risk; however, the opposite happens when a company’s independent directors make up a larger proportion of the board. When debt rises, SPCR falls, meaning that more use of leverage encourages greater openness and efficient disclosure. This study adds to the existing literature on financial risk in emerging economies by showing how a company’s structure and actions in the market affect the risk of a crash. These findings are useful for investors, policymakers, and company leaders who want to increase visibility and lower risks in capital markets.